U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1996
Commission file number: 0-28154SIMPLEX MEDICAL SYSTEMS, INC.
(Formerly "Music Tones Ltd.")
(Name of small business issuer in its Charter)
Colorado 84-1337504
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
430 Ansin Boulevard, Suite G, Hallandale, Florida33009
(Address of principal executive offices, including zip code)
(954) 455-0110
(Issuer's telephone number)
Securities Registered Pursuant to Section 12(b) of the Act: None.
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes [X]
No [ ]
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The Issuer's revenues for its most recent fiscal year were $ -0-.
As of April 11, 1997, 7,500,000 shares of the Registrant's common stock were
outstanding, and the aggregate market value of the shares held by non-
affiliates was approximately $14,995,000.
DOCUMENTS INCORPORATED BY REFERENCE: None.
Transitional Small Business Disclosure Format (check one): Yes __ No X
P-->

PART I ITEM 1. DESCRIPTION OF BUSINESS.BACKGROUND
Simplex Medical Systems, Inc. (the "Company") was incorporated under the
laws of the State of Colorado on October 26, 1987, under the name The Trader's
Edge Ltd. On March 28, 1996, the name was changed to Music Tones Ltd. The
Company was generally inactive through December 31, 1996. On March 28, 1997,
the Company's shareholders approved a proposal to change the Company's name to
Simplex Medical Systems, Inc.
In April 1996, the Company filed a registration statement with the
Securities and Exchange Commission on Form 10-SB, wherein it registered its
common stock under Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "34 Act"). As a result, the Company became a fully reporting
company under the 34 Act.
On March 5, 1997, the Company completed a reverse acquisition of 100% of
the outstanding common stock of Simplex Medical Systems, Inc., a Florida
corporation ("Simplex-Florida") in exchange for 3,453,000 shares of the
Company's Common Stock which resulted in the shareholders of Simplex-Florida
acquiring approximately 46.04% of the shares outstanding in the Company. In
connection with the closing of this transaction, several shareholders
submitted for cancellation a total of 31,953,000 shares of common stock. As a
result, after the acquisition of Simplex-Florida there are a total of
7,500,000 shares outstanding.
Unless the context otherwise requires, the term "Company" as used herein
refers to the Company and its wholly-owned subsidiary, Simplex-Florida, and
its wholly-owned subsidiary Analyte Diagnostics, Inc. ("ADI"). Simplex-Florida
was incorporated in Florida in September 1995, and ADI was
incorporated in Florida on June 6, 1995.
DESCRIPTION OF BUSINESS GENERAL
Simplex-Florida, through ADI, is engaged in the development,
acquisition, manufacturing and marketing of medical diagnostic products for
point-of-care testing. Simplex-Florida offers a diagnostic test for HIV which
screens saliva instead of blood or urine, and has been approved for
professional use as a point-of-care screening test in Brazil.
The Company has, through internal development, assignment, acquisition,
and a series of joint development agreements, certain rights to technology for
non-invasive diagnostic products, specifically products for detection of HIV
antibodies in saliva, and for the testing of diabetics to monitor their daily
dietary and insulin requirements. The non-invasive collection and analysis of
biological fluids, specifically, the devices for collection of saliva and
biological fluids extracted through the skin of a sample donor, are expected
to replace many of the present test regimes for diagnostics products that are
currently in use. Each of these technologies for the non-invasive sample
collection devices were being jointly developed through a formal contractual
relationship between the Company's subsidiary, ADI and Technical Chemical &
Products, Inc. ("TCPI"), of Pompano Beach, Florida. The Company and TCPI were
to share equally in the profits resulting from their joint development
efforts, however, this relationship terminated in December 1995. The
agreement with TCPI
-2-
P-->

provides that the Company has the right to independently exploit the two joint
inventions with TCPI and the patent rights, and the right to license under the
background patents of TCPI, on reasonable terms, to the extent necessary to
exploit the jointly developed products.
THE COMPANY'S PRODUCTS The Company, by virtue of its employment, assignment and license
agreements with key personnel, through ADI, its wholly-owned subsidiary, and
through agreements with otherwise unaffiliated companies, presently owns
and/or has rights to technology (pending patent applications ) in the products
and markets of principal interest to the Company. Two of the listed products -
the saliva collection and glucose test - are assets of the Company's
subsidiary, ADI. The balance of the products are either proprietary to the
Company or result from joint development and marketing relationships.
Public Health officials, including specifically the agencies that are
responsible for testing defined populations in prisons, military and
registered prostitutes, have become increasingly concerned with the need for a
rapid and accurate diagnostic test for detection of infectious disease,
including specifically HIV, hepatitis and the like. The prospective customers
of the Company's saliva collector and diagnostic products require that such
diagnostic products be relatively simple to use, and capable of use outside
the laboratory (on-site diagnostic testing). In relatively undeveloped
countries the on-site testing is of paramount importance to acceptance of such
tests.
Because the Company's initial marketing and sales efforts are directed
outside the United States, FDA approval of certain of the Company's products
may not be as restrictive compared to domestic requirements. The customers of
the Company's products generally favor products that are manufactured in
facilities which are subject to FDA regulation (FDA registered establishment)
and thus the Company has had its facilities registered.
A. THE SALIVA COLLECTION DEVICE, was designed for the collection,
recovery, dispensing and on the spot testing of a fluid sample, including
vital biological fluids such as saliva. Other aspects of the technology
include an optical window integrated with the device to provide analysis of
the sample within the device.
The device consists of a recovery container in the shape of a small
plastic test tube which embodies a tubular member having an open end and
closed end and includes an absorbent element comprised of a polymer foam to
absorb a fluid sample in sufficient quantity to permit analysis and testing
without elaborate sample preparation or laboratory equipment. In certain
designs, by applying a pressure to the flexible tube the fluid can be squeezed
into a reservoir which can then be collected for analysis. The volume of
saliva collected by the absorbent element is a function of both the size of
the element and the time the element is in contact with the donor. The test
kit for this technology includes an analyte sensitive element and one sample
collection device along with instructions for performance of an analysis of
the collected fluid sample.
The Company's saliva sample collector is to be used in place of the more
traditional, and intrusive, sample collection methodologies (e.g. drawing
blood by venous puncture or finger stick) to obtain a biological fluid sample,
which, in most instances, is comparable, or preferable, to biological fluids
such as blood, urine or fecal matter, for constituent analysis. The market for
the Company's fluid sample collector is not restricted by international
boundaries and, depending upon the diagnostic test used in conjunction
therewith, will be made available to any business or individual having a need
to collect a fluid
-3-
P-->

sample by untrained personnel and without the need or assistance of elaborate
and intrusive equipment.
In clinical tests, it has proven both safe and effective for the
collection of a clinically acceptable sample of saliva from a donor's mouth;
and the recovery thereof for constituent analysis. Because of the metabolic
constituents of saliva, the sample collector can be used with a number of
diagnostic tests, including analysis for antibodies indicative of disease
states (HIV, hepatitis, measles and mumps) and, for drugs of abuse.
The fluid collection device to be manufactured and distributed by the
Company is also suitable for use with any one of a variety of screening tests
for on-site determination of the presence of pollutants in drinking water,
waste streams and in environmentally sensitive habitats.
The Brazilian Ministry of Health has recently approved the importation
and professional use of the Company's saliva test in Brazil.
During March 1997, the Company signed a Memorandum of Understanding with
Sun Biomedical Laboratories, Inc. ("Sun") to collaborate on the development of
a new saliva-based diagnostic test for mumps, rubella and pertussis (whooping
cough). Sun is a bio-tech product development and manufacturing company
located in Cherry Hill, New Jersey.
B. THE NON-INVASIVE GLUCOSE TEST is a formulation and method for the
analysis of interstitial fluids to determine the presence and/or concentration
of an analyte of interest such as glucose. The test kit comprises one or
more reagents for the extraction and collection of the fluid, a collection
device and an analyte sensitive element integrated with the collection device
that is responsive to and capable of identifying the analyte contained in the
extracted fluid. This product configuration is clearly in the research and
development stage as no final commercial embodiment has been created. Nor can
the Company determine with certainty if it infringes upon patents and other
claims inasmuch as this is an area of active development by a number of
competing companies. Neither the Company nor ADI have a patent pending for
this technology.
The technology of the invention consists of a formulation comprising a
multi-phasic fluid composition. The device initially obtains a biological
fluid sample by extraction of intercellular, i.e. interstitial fluid through
the skin and thereafter channels such fluid along a pathway within the device
so as to make it available for analysis by contact with an analyte sensitive
medium. The analyte sensitive element will typically contain a test strip that
is sensitive to the presence of the analyte sought to be identified. Upon
interaction of the fluid and the chemical within the test strip a physical and
demonstrative change occurs in the test strip, which is indicative of the
presence or absence of the chemical sought to be identified.
C. BIOVEN ANTI-INFLAMMATORY/ANTI-ARTHRITIC TREATMENT is a powerful
and safe treatment for the symptomatic treatment of Rheumatoid Arthritis
("RA"). The Company's principal scientist developed BIOVEN after fifteen years
of extensive research in the field of immunology. BIOVEN has undergone
significant clinical trials in several foreign countries and has gained
approval for administration in Hong Kong and Nicaragua, but not in the United
States.
BIOVEN is a result of years of experimentation, evaluation and
historical study in the field of peptide use. The product is currently
administered as an injectable solution made under the strict guidelines of the
FDA. The BIOVEN mode of action is believed to function by reversing the body's
chemical/ immunological imbalances that are present in RA. Hospital studies
and laboratory data have
-4-
P-->

confirmed that in the typical case where the RA test is positive, the
treatment with BIOVEN returns test results to normal. The immunoglobulin
fractions of patients' blood with RA that are abnormal are returned to
baseline normal levels after treatment with BIOVEN. The biological results are
quantifiable. After treatment with BIOVEN, the joint inflammation is reduced,
the joint pain is removed and a general feeling of well-being is reported by
most patients. Patients who have previously required high doses of pain
medication, such as aspirin, can reduce the amount of medication needed and,
in many instances, stop taking all secondary pain medications.
BIOVEN has been shown not to have any adverse side effects. In over
2,000 case histories, to the Company's knowledge, there has not been one
adverse reaction reported in clinical use. The LD50 studies that have been
done along with the other safety tests confirmed BIOVEN's safety and efficacy.
BIOVEN has been used to treat Early Onset Rheumatoid Arthritis and to
the Company's knowledge in all cases has resulted in a marked and to date,
permanent, beneficial result. There are many children today who are leading a
normal life due to BIOVEN treatment. The mode of action of BIOVEN has led
other scientific groups to use it to develop a clearer understanding of how
the RA process works and how it affects the body.
Research into the uses of BIOVEN has been an on-going project that has
not ended with the anti-inflammatory properties of the drug. New research over
the past several years has led to a modified version of BIOVEN with very
potent and effective antiviral properties. The modified BIOVEN (BIOVEN-H) has
been used to treat Herpes zoster (Shingles), Herpes keratitis (Herpes of the
eye) and Herpes varicella (cold sores). All three conditions responded with a
100% cure rate in all cases. Over 100 cases to date have been treated and all
report the disappearance of the virus and its effects. BIOVEN-H works in three
to five days and has no side effects.
BIOVEN-H has been used by the Director of Medicine at the Eye Institute
of Nicaragua on dozens of patients with Herpes infections of the eye and found
it to be effective in preventing blindness in the patients. The Institute used
BIOVEN-H for many years prior to the political changes that restricted trade
with the United States and thus made the drug unavailable there. This
situation has reversed itself and the Company is planning to reestablish a
manufacturing plant in the country as soon as adequate funding becomes
available.
BIOVEN can be made available for clinical trials worldwide and for sale
in countries where approval is currently in force. The Company believes the
market for both BIOVENs in the countries where it is currently licensed is
very significant. Major steps have been undertaken to gain approval in the
European Economic Community and the Company is currently arranging for
clinical trials in Italy to accomplish this. Bioven has not been approved for
use in the United States, nor can there be any assurance that such approval
will be forthcoming. Should FDA approval for use in this country be obtained,
the Company estimates the BIOVEN market could be very substantial. It should
be emphasized that no market test studies have been undertaken by the Company
and no patents have been acquired nor are any pending for this product.
D. BLOOD GROUP MODIFYING SUBSTANCE. Blood group substances are the
glycoproteins that surround the surface or coat the surface of the red cells
(erythrocytes) and determine the "type" of the blood, i.e. A, AB, O. The
Company is currently investigating using its proprietary technology to alter
these active substances so as to render the blood "universal donor" type. If
successful it will have a major significance in the medical community by
allowing for the
-5-
P-->

transfusion of any blood type from a donor to any blood type recipient. The
preliminary laboratory studies carried out by the Company have indicated that
this universal blood type treatment process is feasible and practical. The
market to be targeted initially for this conversion process will be the
military for field use as well as to relieve the current shortage in
transfusable blood. The Company has no patent nor is one pending for this
technology.
E. SOLID PHASE MATRIX TECHNOLOGY AND PROCESS. The Company has
developed a proprietary method of preparing a support system for diagnostic
tests which will increase the sensitivity of the tests and make the
manufacture of these tests much more cost effective. This technology will have
application in the rapid diagnostic field, the clinical laboratory testing
field and in the area of forensic testing. Test systems are currently being
adapted to the Simplex Solid Phase Matrix System for the rapid detection of
the HIV virus, TB, Hepatitis virus and many tumor marker proteins used in
cancer detection. No patent has been acquired nor is any pending for this
technology.
F. DENTAL AIR ABRASIVE DEVICE. The Company has developed and applied
for patents and FDA approval on a disposable handpiece which attaches to
standard air abrasive etching devices used by dentists for tooth bonding
procedures. The product effectively abrades the surface of teeth, but has no
effect at all on soft issue. Because it is disposable and there is no need
for extensive sterilization procedures, the product increases patient through-
put.
G. BIOREMEDIATION. The problem of "refined" oil marine and
environmental pollution is a global crises. The Company has developed and
tested a naturally derived strain of bacterial organisms which when placed in
an oil polluted area will naturally consume the oil and thus reduce the level
of pollution from the oil to accepted levels. This technology is primarily
intended for confined areas such as boat and ship bilges to prevent overboard
discharge contamination or in oil sumps in garages to prevent runoff
contamination. This product is currently being prepared for patent
application.
H. FLAVOR ENHANCEMENT. The Company has developed a proprietary
process which allows for the incorporation of flavor essences into an edible
support material using food grade materials and approved printable inks. This
process has given rise to a new form of advertising sampler which will enable
a consumer to sample new food and beverages through newspaper ads, point of
sale displays or direct mailings. The encapsulation process and method of
manufacturing are proprietary and the Company is seeking patent protection for
this technology.
I. MOLECULAR SIEVING AIR/GAS FILTERS. This product and technology is
utilized in the storage and preservation of food for storage and shipment by
selectively absorbing the gasses responsible for the ripening of the food,
specifically fruits and vegetables. Variations in this product are used in the
control of odors in air conditioning systems as well as to prevent the growth
and spread of organisms in the systems. This product is currently being
introduced to the commercial sector and plans are underway to introduce this
product in the consumer markets by 1997. The Company has no patent nor are any
pending for this technology.
J. PET PRODUCTS. The Company has filed trademark protection on the
name Neemodex, for its proprietary flea and tick shampoo. This product is all
natural, non-insecticidal, non-toxic and environmentally safe and has met with
acceptance in its recent introduction in the marketplace. The Company is the
manufacturer of this product and expects to expand on its formulation line by
adding new pet grooming products in the near future.
-6-
P-->

K. TUMOR MARKERS. The Company also has an agreement with Goodwin
Biotechnology Inc. ("GBI") to collaborate in the development of
immunodiagnostic products for the early detection of tumor markers. GBI,
located in Plantation, Florida, is a contract manufacturer of clinical
biologics (e.g. monoclonal antibodies, recombinant proteins) for the
pharmaceutical and medical research industry. The diagnostic test to be
developed by the Company is to be co-marketed with a immunotherapeutic agent
presently under development by GBI.
THE MARKET The Company believes that the general state of the saliva diagnostic
market with regard to the products available, the size of the market and the
number of competitive manufacturers can be described as in the infancy of an
extremely large industry. It must be emphasized that no market or feasibility
study has been undertaken by the Company. Commercial development of
immunoassays in diagnostic medicine commenced in the 1960's and has increased
significantly since then, due principally to the high degree of sensitivity
and specificity of such techniques.
Tests for hepatitis, HIV, mumps, measles, cancer tumor markers, EBV,
CMV, and many others are currently using blood as the source of the specimen.
These tests, while effectively performed in the clinical setting, are
expensive, time consuming and, at the least, painful for the recipient of the
blood collection needle. The skill and expertise of the physician or other
highly trained individual needed to obtain the sample of blood for these tests
is also adding to the high cost of the testing.
The saliva collection and test system not only tends to solve the
aforementioned problems but is easy to use and lends itself to home or "point
of care" style testing. These advantages effectively reduce the overall cost
of immunological testing and allow for the immediate results to be made
available to the practitioner or individual. The Company believes that testing
with saliva specimens has many potential advantages compared to testing with
blood and urine specimens. Unlike obtaining blood specimens, saliva specimens
can be collected at any time in any location and the sampling procedure is
easy to administer and monitor, and may be conducted on a group basis. The
Company believes, that unlike self-administered blood collection, the use of
its products will not require special training. Blood specimen testing
requires the use of needles, which may accidentally injure or infect the
technician collecting the specimen or the subject giving the specimen. Saliva
specimen collection does not require the use of sharp objects. Additionally,
after collection, blood specimens remain potentially infectious (can contain
live HIV virus) whereas saliva specimens are believed not to be infectious.
The use of saliva specimens also has advantages compared to the use of urine
specimens inasmuch as the integrity of the saliva specimen can be maintained,
chain of custody concerns can be addressed and saliva collection can be used
without significant invasion of privacy.
Disadvantages of saliva collection include the stability of saliva as a
specimen and the impact of the subject's diet and enzymes on saliva.
Provisions must be made to assure that a sufficient amount of saliva is
collected, the specimen is adequately stabilized and bacterial growth does not
cause test interference.
Saliva based testing has been recognized by the World Health
Organization ("WHO") and the FDA as efficacious and practical. Several tests
have been approved to be used in the clinical market based on saliva samples.
Countries such as Thailand, Brazil, Mexico, Russia and many others have
already made policy changes which allow for the use, and even encourage the
use, of saliva tests for
-7-
P-->

HIV in their overall health programs. The immunoassay diagnostic testing
market began in 1960, and, in 1990 was approximately a $2.8 billion market.
The immunoassay diagnostic test market in the United States was estimated at
$900 million in 1990, with annual growth estimated between 7% and 8%.
The overall market currently is divided into three major components;
first, the "government" sector, second, the "captive audience" sector
(military, criminal, institutional, etc.) and lastly, the "private" sector or
individual patient.
The international markets for the Company's products include both the
government and the private business sectors. More specifically, subject to
government approvals, the Company's introduction of its saliva collector will
be with an HIV diagnostic screening test. The HIV test kit is initially
planned for distribution and use by governmental public health agencies and by
the foreign military establishment. In certain foreign markets, the Company's
HIV test kits are expected to be advertised for sale directly to the private
physicians and to the consuming public.
The Company already has products under evaluation in several countries,
including Russia, Thailand, Paraguay, Mexico and Venezuela. Several countries
have begun testing the ADI HIV saliva test with the goal of introducing the
product to the military to replace the currently used blood test. Public
Health institutions in several foreign countries have reviewed and tested the
Company's HIV saliva collectors. Their goal is to use the test to screen the
"at risk" populations present in the major cities and tourist areas. These
include the legal prostitutes, the drug addicts, the homosexual population and
the prison population. Results of this testing will be used to develop policy
for the education programs which must be implemented along with testing to
halt the rapid spread of this infection. Additionally, many of these countries
will use the results of this testing and mass screening to plan for the future
health needs of their country.
The tremendous publicity of the HIV/AIDS epidemic has created a very
large demand by individuals who would like to have a test. However,
individuals are reluctant to submit to organized testing because of a fear of
being "reported" and the social consequences even if negative. The testing of
partners is a common concern in the socially active. The simple and
confidential nature of saliva testing allows for the individual to perform the
Company's test in the privacy of his own home at his convenience. As a
screening test this will reduce the unnecessary burden on the clinical labs as
only the positives must be retested. Doctors office visits will be reduced and
a substantial savings in time will be realized. All of this will lead to
lower overall health costs for the individual.
GOVERNMENT REGULATION
The development, manufacture, testing and marketing of the Company's
diagnostic products are subject to regulation by the FDA and other federal,
state and foreign agencies. Under the FDC Act, the FDA regulates almost all
aspects of development, marketing and sale, including the introduction,
clinical trials, advertising, manufacturing, labeling, distribution of and
record keeping for the products in the United States.
Diagnostic products marketed for testing drugs of abuse are regulated as
medical devices under the FDC Act for which FDA approval is required. The
Company may attempt to obtain marketing clearance through 510(k) Premarket
Notification for certain of its products used in connection with testing for
drugs of abuse. Following submission of a 510(k) Premarket Notification, the
manufacturer or
-8-
P-->

distributor may not place the device into commercial distribution until an
order is issued by the FDA. The FDA has no specific time limit by which it
must respond to a 510(k) Premarket Notification. The FDA may declare that the
device is "substantially equivalent" to another legally-marketed device, and
allow the device to be marketed in the United States. The FDA may, however,
determine that the proposed device is not substantially equivalent, or may
require future information, such as additional test data, before the FDA is
able to make a determination regarding substantial equivalence. There can be
no assurance that the Company will receive approval for any of its products
under 510(k) Premarket Notification. There can be no assurance that marketing
clearance will be obtained for any of its products.
Other than as described below, no FDA approval has yet been received for
any of the Company's products and there can be no assurance that such approval
will ultimately be obtained. In this regard, special attention should be given
to the Company's primary product, the saliva collection device. This product
test kit has not been approved by the FDA for sale within the United States.
It is however, the Company's proposal to export the test kit in compliance
with the applicable laws and regulations administered by the FDA. Initially,
because the test device has not been approved for use in the United States,
the Company would have to comply with the FDC Act, if it wishes to export the
device in its finished form. To export the completed saliva test kit from the
United States, the Company does not only need to receive permission to export
the product into the foreign country, it also had to submit to the FDA, basic
data regarding the safety of the finished device in order for the agency to
determine that export is not contrary to public health and safety. The FDA
has approved the export of the saliva collection device provided that the
appropriate regulatory agency of the country to which it is exported has
approved the importation and use of the product.
FOREIGN REGULATION
Agencies similar to the FDA regulate medical devices in some foreign
countries, whereas other countries allow unregulated marketing of such
devices. The Company's products will be required to meet the regulations, if
any, of the foreign countries in which they are marketed.
MANUFACTURING The Company believes that most components used in the manufacture of its
current and proposed products are currently available from numerous suppliers
located in the United States, Europe and Asia. However, certain components are
available only from a limited number of suppliers. Although the Company
believes that it will not encounter difficulties in obtaining these
components, there can be no assurance that the Company will be able to enter
into satisfactory agreements or arrangements for the purchase of commercial
quantities of such components.
The Company anticipates that it will not be required to maintain
significant inventory levels of products until the Company's products are
deemed acceptable for sale. The Company does not currently have any material
backlog. Until the Company is able to market its products on a broad basis, it
does not anticipate that its backlog or inventory level will be material. At
that time, the Company intends to cause these products to be manufactured for
it shortly before they are required for shipment. The Company does not foresee
that an extensive period of time will be required from the time of its
manufacturing order to the time of final delivery of its products.
-9-
P-->

COMPETITION
The market in which the Company participates, saliva-based collection
and diagnostic testing, is highly competitive. The Company is aware of certain
other entities, specialized biotechnology firms, as well as universities and
other research institutions, which have patented, developed, or are developing
technologies and products which are competitive with the Company's products
and technologies. These entities, most of which are established, have
substantially greater research, marketing and financial resources than the
Company. The Company expects that the number of products competing with its
products will increase as the potential benefits of saliva-based testing
become more widely recognized.
The Company is attempting to develop strategic alliances with companies
to jointly develop diagnostic tests which use saliva and/or blood as the
testing specimen.
PATENTS AND PROPRIETARY INFORMATION The Company presently has pending, three (3) patent applications in the
United States, on certain aspects of its saliva collection testing device.
Inasmuch as the Company intends to sell its products in foreign markets it
intends to seek foreign patent protection on such products and technologies,
although it has not yet obtained such protection. The patent laws of other
countries may differ from those of the United States as to the patentability
of the Company's products and technologies and the degree of protection
afforded.
Much of the technology developed or owned by the Company is subject to
trade secret protection. To reduce the risk of loss of trade secret protection
through disclosure, the Company generally enters into confidentiality
agreements with its employees. There can be no assurance that the Company will
be successful in maintaining such trade secret protection or that others will
not capitalize on certain of the Company is technology.
EMPLOYEES AND DISTRIBUTORS The Company currently has three employees and three consultants. The
Company is not subject to any collective bargaining agreement and believes
that its relationships with its employees are good.
ITEM 2. DESCRIPTION OF PROPERTY.The Company maintains its corporate offices at 430 Ansin Boulevard,
Suite G, Hallandale, Florida33009. The Company rents approximately 3,700
square feet at this location and pays approximately $1,675 per month for rent
pursuant to a lease which expires on August 31, 1997, but the Company has an
option to renew the lease for an additional two years. The Company also rents
approximately 1,300 square feet of lab space in the same building pursuant to
a lease which requires monthly payments of approximately $900 and which
expires September 30, 1997.
ITEM 3. LEGAL PROCEEDINGS.
Other than the law suit described below, there are no pending legal
proceedings in which the Company is a party, and the Company is not aware of
any threatened legal proceedings involving the Company.
On or about August 11, 1995, Americare Transtech, Inc. ("Americare"),
Americare Biologicals, Inc. and International Medical Associates, Inc.,
through
-10-
P-->

their principal, Joseph D'Angelo ("D'Angelo"), instituted suit against six
parties in the Broward County circuit court under case no. 95-011256 (21).
The complaint was dismissed and subsequently amended on or about May 17, 1996,
and included Simplex-Florida as a defendant in one count of the amended
complaint. The complaint alleges that ADI misappropriated Americare's
proprietary and trade secret technology relating to the saliva sample
collection system and non-invasive glucose detection technology. Nine
affirmative defenses have been filed in response to the allegations. Simplex
intends on aggressively defending the case and believes that the action lacks
merit and has been filed as a retaliatory measure by D'Angelo as a result of
an earlier action filed against D'Angelo and Americare by one of Simplex's
principals.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 1996.
-11-
P-->

PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) MARKET INFORMATION. The Company's Common Stock trades in the
over-the-counter market, under the symbol "SMLX". Other than a few sporadic
trades during November 1996, the trading commenced during February 1997. The
following table sets forth the high and low bid prices for the Company's
Common Stock for the periods indicated as reported by the OTC Bulletin Board.
These prices are believed to be inter-dealer quotations and do not include
retail mark-ups, mark-downs, or other fees or commissions, and may not
necessarily represent actual transactions.
QUARTER ENDED HIGH BID LOW BID March 31, 1997 $3.3125 $.03125
(b) HOLDERS. As of March 31, 1997, the Company had approximately 36
shareholders of record. This does not include shareholders who hold stock in
their accounts at broker/dealers.
(c) DIVIDENDS. The Company has never paid a cash dividend on its
common stock and does not expect to pay a cash dividend in the foreseeable
future.
(d) RECENT SALES OF UNREGISTERED SECURITIES. On March 20, 1996, the
Company sold a total of 30,000,000 shares of its common stock to two then
directors, Colleen E. Schmidt and Sandra S. Steinberg (15,000,000 shares
each), for a total consideration of $5,000. The Company relied on the
exemption provided by Section 4(2) of the Securities Act of 1933, as amended,
since both investors were directors of the Company.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.RESULTS OF OPERATIONS
During the fiscal year ended December 31, 1996, and since its formation,
the Company has engaged in no significant operations other than the search
for, and identification and evaluation of, possible acquisition candidates.
No revenues were received by the Company during the fiscal year and no
expenses were incurred.
With the reverse acquisition of Simplex-Florida, the Company's results
of operations will change significantly to reflect the activities of this
subsidiary.
PLAN OF OPERATION
As of April 15, 1997, the Company had approximately $50,000 in cash
available to pay operating expenses and the Company's current level of
overhead is approximately $15,000 to $20,000 per month. The Company has just
started receiving orders for its HIV test kits and the purchasers are being
required to provide letters of credit before the Company has the test kits
manufactured. Therefore, even with limited capital available the Company
expects to be able to fill the orders.
Management believes that its existing cash and projected cash from
operations will be sufficient to fund its continuing operations through the
end of the current fiscal year. In the event additional cash is necessary,
-12-
P-->

management believes that it will be able to raise the financing needed either
through the private placement of equity securities or through debt financing
or a combination of both. There is no assurance that the necessary financing
can be secured.
The Company is continually engaged in a limited amount of research and
development related to new and existing products, and the Company has no plans
to significantly increase the level of research and development during the
current year. In addition, the Company has no plans to purchase any
significant equipment or materially increase the number of employees or
consultants during the current year.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements are set forth on pages F-1 through F-6 hereto.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
No response required.
-13-
P-->

PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The directors and executive officers of the Company and its wholly-owned
subsidiary, their ages and positions held in the Company are as follows:
NAME AGE POSITIONS HELD AND TENURE Nicholas G. Levandoski, Ph.D. 60 Acting President; Vice President -
Research and Development, Secre-
tary, Treasurer and Director
of the Company; and Director of
Research and Development for
Simplex-Florida
John E. Trafton, Ph.D. 54 Vice President of the Company;
President and a Director of
Simplex-Florida
Henry B. Schur 52 Vice President - Marketing and
Director of the Company; Vice
President of Marketing and a
Director of Simplex-Florida
Sheldon Nassberg, M.D. 55 Director of Simplex-Florida
There are no family relationships between any officers and directors of
the Company. The Company presently has no audit, compensation or nominating
committees.
BUSINESS EXPERIENCE
The following is a brief account of the education and business
experience during at least the past five years of the Company's directors,
executive officers, and key employees, indicating the principal occupation and
employment during that period, and the name and principal business of the
organization in which such occupation and employment were carried out.
DR. NICHOLAS LEVANDOSKI has served as the Acting President, Vice
President of Development, Secretary, Treasurer and a director of the Company
since March 5, 1997. He has served as Director of Research and Development
for Simplex-Florida since June 1995. Dr. Levandoski has extensive research
and clinical experience, including military, industry and hospital
environments. Dr. Levandoski received a B.S. degree in Chemistry/Biology from
the University of Notre Dame in 1958. After a brief period in private
industry (Abbott Laboratories, N. Chicago, Illinois), Dr. Levandoski enlisted
and served in the Medical Service Corps. of the U.S. Army from 1959 to 1962.
While on active duty in Medical Service Corps., Dr. Levandoski enrolled and
attended the graduate school of the University of Denver where he continued
his studies in organic chemistry. Upon release from active duty in 1962, Dr.
Levandoski was hired as the Director of Laboratory of Metabolic Division of
the U.S. Army Research and Nutrition Laboratory, Denver, Colorado, from 1962
to 1964, and he completed his graduate studies in 1964. He thereafter held
responsible positions in industry, including Cordis Corps., Miami, Florida,
from 1965 to 1971, in the Diagnostic Products Division; Benasil Corporation,
Miami, Florida from 1977 to 1979; and Director of Corporate Compliance (FDA)
for North American Biologicals, Miami, Florida. In 1979, Dr. Levandoski
returned to active duty in the U.S. Army as
-14-
P-->

Executive Officer and Hospital Administrator for a 1,000-bed general hospital
in Miami, Florida. In 1982, Dr. Levandoski was selected to attend the
National War College, Ft. McNair, Washington, D.C.; and was thereafter
assigned to the Pentagon in Washington, D.C., Division of Reserve Affairs,
where he remained until his retirement as a full Colonel in 1984.
DR. JOHN E. TRAFTON has served as Vice President of the Company since
March 5, 1997. From January 1996 until February 1997, he served as President
of Simplex-Florida. Dr. Trafton has a Ph.D. in Physical Organic Chemistry
from the University of Miami, and extensive experience in the manufacture of
biologics and diagnostic products as Director, Technical Operations for Baxter
Diagnostics, Inc., a wholly owned subsidiary of Baxter International (1989 to
1992). Dr. Trafton has also been involved as a co-founder and principal of
Chiral Design, Inc., a manufacturer of specialty chemicals for the
agricultural and pharmaceutical industries (1992 to 1995). On December 28,1995, the Company acquired 100% interest in Trafton Laboratories, Inc., the
company in which Dr. Trafton was the sole shareholder.
MR. HENRY SCHUR has served as the Company's Vice President of Marketing
and a Director since March 5, 1995. He has served as President of Analyte
Diagnostics, Inc., a wholly owned subsidiary of Simplex-Florida since June
1995. He is the Company's principal scientist and one of the principal
inventors of the Company's products. Mr. Schur has an undergraduate degree in
Health Sciences from Florida International University and post graduate
studies in Business Management at the University of Oklahoma. In the course
of Mr. Schur's professional career, he has occupied responsible positions with
companies engaged in the manufacture of diagnostics products and biochemicals,
including specifically, Arcade, Inc., Chattanooga, Tennessee (1986 to 1987),
and Cordis Corporation, Miami, Florida (1966 to 1968). Mr. Schur, in 1991,
was formerly employed by Americare, with whom Mr. Schur is now in litigation.
Mr. Schur is a principal inventor of a number of the Company's products and
has a number of issued U.S. and foreign patents to his credit.
SHELDON NASSBERG, M.D. has served as a Director of Simplex-Florida since
June 1995. He is responsible for coordination of the Company's relations
within the medical and scientific community and liaison with regulatory
compliance agencies of government. Dr. Nassberg is a graduate of George
Washington School of Medicine (1967); a specialist in Endocrinology &
Metabolism; and Board Certified in 1974 in internal medicine. Dr. Nassberg
presently serves as Chief of the Department of Endocrinology & Metabolic
Disease and as the Medical Director for the Diabetes Treatment Center at North
Ridge Medical Center in Fort Lauderdale, Florida. Dr. Nassberg also serves on
a number of State and National Advisory Committees for the treatment of
Diabetes and the secondary disorders associated with Diabetes.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Based solely on a review of Forms 3 and 4 and amendments thereto
furnished to the Company during its most recent fiscal year, and Forms 5 and
amendments thereto furnished to the Company with respect to its most recent
fiscal year and certain written representations, no persons who were either a
Director, Officer or beneficial owner of more than 10% of the Company's Common
Stock, failed to file on a timely basis reports required by Section 16(a) of
the Exchange Act during the most recent fiscal year except as follows:
Daniel C. Steinberg, Fred A. Bruecher, and Colleen E. Schmidt, three
former officers and directors of the Company, and Sandra S. Steinberg, a
former principal shareholder of the Company, failed to file Form 3's when the
Company became a reporting company during 1996.
-15-
P-->

ITEM 10. EXECUTIVE COMPENSATION.
No executive officer received any compensation for the fiscal years
ended December 31, 1996, 1995 and 1994.
STOCK OPTION PLAN
During March 1997, the Board of Directors adopted a Stock Option Plan
(the "Plan"), and on March 28, 1997, the Corporation's shareholders approved
the Plan. The Plan authorizes the issuance of options to purchase up to
1,000,000 shares of the Company's Common Stock.
The Plan allows the Board to grant stock options from time to time to
employees, officers, directors and consultants of the Company. The Board has
the power to determine at the time that the option is granted whether the
option will be an Incentive Stock Option (an option which qualifies under
Section 422 of the Internal Revenue Code of 1986) or an option which is not an
Incentive Stock Option. Vesting provisions are determined by the Board at the
time options are granted. The option price for any option will be no less
than the fair market value of the Common Stock on the date the option is
granted.
Since all options granted under the Plan must have an exercise price no
less than the fair market value on the date of grant, the Company will not
record any expense upon the grant of options, regardless of whether or not
they are incentive stock options. Generally, there will be no federal income
tax consequences to the Company in connection with Incentive Stock Options
granted under the Plan. With regard to options that are not Incentive Stock
Options, the Company will ordinarily be entitled to deductions for income tax
purposes of the amount that option holders report as ordinary income upon the
exercise of such options, in the year such income is reported.
No options had been granted under this Plan as of March 31, 1997.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of March 28, 1997, the stock
ownership of each person known by the Company to be the beneficial owner of
five percent or more of the Company's Common Stock, each officer and director
individually, and all officers and directors as a group. Each person has sole
voting and investment power over the shares except as noted.
[Download Table]
AMOUNT AND
NAME AND ADDRESS NATURE OF BENE- PERCENT
OF BENEFICIAL OWNERS FICIAL OWNERSHIP OF CLASS
Henry B. Schur 1,042,500<FN1> 13.9%
2160 Poinciana Drive
Hallandale, Florida33009
Debra L. Ross 1,042,500<FN2> 13.9%
2160 Poinciana Drive
Hallandale, Florida33009
John E. Trafton 878,000 11.7%
285 Sunrise Drive, Apt. 16
Key Biscayne, Florida33149
-16-
P-->

Nicholas G. Levandoski 0 -0-
430 Ansin Boulevard, Suite G
Hallandale, Florida33009
All Directors and Officers 1,920,500<FN1> 25.6%
as a Group (4 Persons)
_______________________
<FN> <FN1>
Includes 862,500 shares held of record by Mr. Schur's wife, Debra Ross, 80,000
shares held by Mr. Schur's daughter, and 100,000 shares held in trust for Mr.
Schur's daughter.
<FN2>
Includes 862,500 shares held directly by Ms. Ross, 80,000 shares held by Ms.
Ross' daughter, and 100,000 shares held in trust for Ms. Ross' daughter.
</FN> The Company knows of no arrangement or understanding, the operation of
which may at a subsequent date result in a change of control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.ACQUISITION OF SIMPLEX-FLORIDA
On March 5, 1997, the Company completed the acquisition of 100% of the
outstanding common stock of Simplex Medical Systems, Inc. ("Simplex-Florida")
in exchange for 3,453,000 shares of the Company's Common Stock (approximately
46.04% of the shares now outstanding). The shares were exchanged on the basis
of one share of the Company's common stock for one share of Simplex-Florida
common stock. In connection with the closing of this transaction, several
current shareholders submitted for cancellation a total of 31,953,000 shares
of common stock. As a result, after the acquisition of Simplex-Florida, there
are a total of 7,500,000 shares outstanding.
The stock issuances were made pursuant to an Agreement ("Agreement")
between the Company and Simplex-Florida. The terms of the Agreement were the
result of negotiations between the managements of the Company and Simplex-
Florida. However, the Board of Directors did not obtain any independent
"fairness" opinion or other evaluation regarding the terms of the Agreement,
due to the cost of obtaining such opinions or evaluations.
TRANSACTIONS INVOLVING SIMPLEX-FLORIDA
In October 1995, Simplex-Florida entered into an agreement whereby it
issued an aggregate of 61,875 shares of its common stock to Debra Ross (Mr.
Schur's wife), Nicholas Levandoski, Linda Kirsch-Topper and John H. Faro in
exchange for their respective ownership interests in Analyte Diagnostics, Inc.
("ADI") which constituted all the outstanding capital stock of ADI. As a
result ADI became a wholly-owned subsidiary of the Company.
On December 28, 1995, Simplex-Florida issued 214,375 shares of its
common stock to Dr. John E. Trafton in exchange for his 100% interest in
Trafton Industries, Inc., a Florida corporation which manufactured specialty
chemicals for the pharmaceutical and agricultural industries.
-17-
P-->

TRANSACTIONS INVOLVING THE COMPANY
On March 20, 1996, the Company issued to each of Mesdames Colleen E.
Schmidt, a Director of the Company, and and a Company Director, and Sandra S.
Steinberg, a Director of the Company, 15,000,000 shares of the Company's
common stock, $.0001 par value per share (a total of 30,000,000 shares of
common stock), in consideration, in each case, for the sum of $5,000 in cash
(a total of $10,000 in cash). These shares collateralized two non-interest
bearing promissory notes in the principal amount of $2,500 each (an aggregate
face amount of $5,000), due and payable on May 31, 1996, of which each of
Mesdames Schmidt and Steinberg are the makers and the Company is the holder.
-18-
P-->

Janet Loss, C.P.A., P.C.
Certified Public Accountant
9101 East Kenyon Avenue, Suite 2000
Denver, Colorado80237
Board of Directors
Music Tones, Ltd.
(A Development Stage Company)
I have audited the accompanying balance sheets of Music Tones, Ltd. (a
development stage company) as of December 31, 1996 and 1995, and the related
statements of operations, shareholders' equity (deficit) and cash flows for
the years ended December 31, 1996 and 1995. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audits.
I conducted my audits in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. I believe that my audits provide a reasonable basis
for my opinion.
In my opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Music Tones, Ltd. (a
development stage company) as of December 31, 1996 and 1995, and the results
of its operations and its cash flows for the years ended December 31, 1996 and
1995.
/s/ Janet Loss, C.P.A., P.C.Janet Loss, C.P.A., P.C.FEBRUARY 28, 1997F-1
P-->

MUSIC TONES, LTD. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS NOTE 1 - HISTORY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Music Tones Ltd., a Colorado Corporation, was incorporated October 26, 1987,
and the Company was generally inactive through December 31, 1996. The original
name of the corporation was The Trader's Edge Ltd.; the name change occurred
March 20, 1996.
Year End
The Company has elected a calendar year-end.
Accounting Method
The company records income and expenses on the accrual method.
Organization Costs
Costs incurred in organizing the Company are being amortized over a
sixty-month period.
NOTE 2 - CAPITAL STOCK
On March 20, 1996, the corporation issued a 2,000-to-1 forward stock split for
common stock. Thus, the total common stock authorized changed from 50,000 to
100,000,000; and from no par value to $.0001 par value.
NOTE 3 - RELATED PARTIES The Company has issued 3,000 shares of stock for services rendered from March
18, 1990, to March 21, 1993.
The Company maintains its office in space provided by the Company's president
pursuant to an oral agreement on a rent-free basis with reimbursement for
out-of-pocket expenses, such as telephone.
NOTE 4 - SUBSEQUENT EVENTS
On March 5, 1997, the Company completed a reverse acquisition of 100% of the
outstanding common stock of Simplex Medical Systems, Inc., a Florida
corporation ("Simplex-Florida") in exchange for 3,453,000 shares of the
Company's common stock which resulted in the shareholders of Simplex-Florida
acquiring approximately 46.04% of the shares outstanding in the Company. In
connection with the closing of this transaction, several shareholders
submitted for cancellation a total of 31,953,000 shares of common stock. As a
result, after the acquisition of Simplex-Florida there are a total of
7,500,000 shares outstanding.
NOTE 5 - NAME CHANGE
The corporate name has been changed from Music Tones, Ltd. to Simplex Medical
Systems, Inc. effective March 28, 1997.
F-6
P-->

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: April 15, 1997 SIMPLEX MEDICAL SYSTEMS, INC.
By: /s/ Nicholas G. LevandoskiNicholas G. Levandoski, Ph.D.,
Acting President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Henry B. Schur Vice President of Marketing April 15, 1997Henry B. Schur and Director
/s/ Nicholas G. Levandoski Acting President, Vice April 15, 1997Nicholas G. Levandoski, President of Research and
Ph.D. Development, Secretary,
Treasurer (Chief Executive
Officer and Chief Financial
and Accounting Officer)
and Director
R-->